Growth and Change in 2018 Bangkok Property Market
07 Mar 2018
CBRE, the leading international real estate advisor, reports that the new year has started with a mood of optimism for the Thai economy lifted by an upbeat global outlook. Developers are competing fiercely for prime development sites, driving up prices to record levels and both condominium prices and office rents are at record highs. E-commerce and changes in consumer behaviour are shaping the retail and modern logistic property sectors.
Exports and Tourism: Main Contribution to Thai Economy
The Thai economy is picking up with growth in exports and tourism. Thailand finished 2017 with 3.9% Y-o-Y gross domestic product (GDP) growth, resulting from a significant increase of 9.9% in exports to all major markets.
The tourism sector, accounting for 20% of the country’s GDP, saw a record 35.4 million arrivals, an increase of 8.6% Y-o-Y in 2017 with further growth predicted for 2018.
Local Developers Form Joint Ventures with Foreign Partners
Thai banks are being conservative about new project lending to developers and so Thai developers are seeking funding from foreign partners. The number of joint venture projects in Bangkok have grown exponentially from only 4 projects in 2013 to 52 projects in 2017. Most joint ventures to date have been with Japanese investors on a project-by-project basis for condominiums.
CBRE Thailand is now also seeing investors from other countries such as Singapore, Hong Kong and China. Although earlier joint ventures started with condominium development, CBRE expects new investment in both condominium and income producing properties such as office.
The proportion of foreign buyer to Thai buyer rose slightly to from last year to 25% of total CBRE’s transactions. CBRE expects foreign buyers to continue to buy Thai residential property both luxury products and below THB 10 million segment as CBRE has witnessed developers put greater efforts to market their projects offshore.
Demand Continues for Prime Sites
“Demand for prime sites has remained strong with developers continuing to acquire sites both for condominium and rental income producing office, hotel and retail developments,” reported Ms. Aliwassa Pathnadabutr, Managing Director of CBRE Thailand.
Land prices in the Bangkok’s central business district (CBD) will continue to increase in the most prime locations near mass transit stations. Prime sites have in some cases increased by 25-30% Y-o-Y in 2017.
CBRE Research has already seen the biggest land sale in Thai history with the acquisition of the British Embassy site by the Central Pattana (CPN) / Hongkong Land Joint Venture at GBP 420 million and a record price paid of THB 3.1 million per square wah for an 880 square wah development site on Soi Langsuan by SC Asset.
Developers are starting to diversify with residential condominium developers looking at moving into income producing office, retail and hotel properties.
The scarcity of prime, CBD freehold sites will drive prices up.
Steady Demand for Offices but Tenants Start to Look at Alternative Workplace Solutions
Mr. Nithipat Tongpun, Head of Advisory and Transaction Services – Office, CBRE Thailand expects steady Bangkok office demand of 200,000 square metres per year for the next few years. However, he does not expect a sudden jump in demand, so new supply of less than 200,000 square metres in 2018 will mean that vacancy will remain low and rents will continue to rise, but at slower rate. The vacancy rate is 7.8% and falling and rents rose by between 4-5% for all grades in all locations.
“As rents rise, office tenants will seek to reduce occupation costs by applying workplace strategies so they can put more people in less space,” said Mr. Nithipat.
Rising rents and changes in international accounting rules where leases now have to be accounted for on the balance sheet and the desire not to pay for the capital cost of fit out and have no long-term commitments will lead some multinationals to choose renting by the desk in co-working space, rather than leasing and fitting out traditional offices.
Four international co-working space operators will open their first locations with a combined area of about 18,000 square metres in office buildings in Bangkok’s CBD this year. CBRE expects they will continue to expand.
Retail Landlords to Create New Experiences
CBRE Research anticipates that the contest between “bricks versus clicks”, with the disruptive effect of e-commerce on traditional retail formats, will start to be felt in Thailand in 2018.
CBRE predicts that the vacancy rate of 5% will fall as renovations are completed on existing shopping centres. New supply will be about 300,000 square metres in 2018, compared to 100,000 square metres in 2017, increasing competition among retail centres to attract customers.
Retailers will also become omni-channel with a mixture of online and offline sales which could mean they need less space. Retailers and retail landlords will have to adapt by not only creating unique experiences but also providing convenience that cannot be replicated online.
E-commerce Drives Demand for Modern Logistics
The growth in e-commerce will lead to increased demand for all forms of modern logistics properties (MLPs), according to CBRE Thailand. As of Q4 2017, the overall occupancy rate of MLPs stood at 79.2%, improving from 78.6% in the previous quarter.
The value of global e-commerce market has accelerated every year. For every USD 1 billion of e-commerce sales in the U.S., 100,000 square metres of additional logistics space is needed, according to CBRE’s Industrial Property Research. Thailand’s e-commerce value in 2017 was estimated at USD 2.84 billion or accounted for about 1% of total retail sales.
CBRE predicts that increases in e-commerce sales in Thailand will have a similar proportionate effect on the demand for MLPs. Opportunities and Risks in 2018
Opportunities and Risks in 2018